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Project Management Institute South Africa (PMISA)‘Regional African Project Management’South Africa, 3 – 5 November 1999Edited Conference PresentationsDocument Transformation Technologies

Outsourcing Four Projects and a ProcessMarion Fogell, IBM South Africa

In recent years many companies have realised the strategic advantages of focusing on their corebusiness processes and outsourcing non-core business operations to specialist organisations.

Non-core processes often do not meet customer requirements, do not meet control requirementsand/or are perceived to be inefficient and expensive. As these operations are not the customerorganisation’s speciality and have these intrinsic problems the supplier organisations (who are, ofcourse, experts in their field) often dominate the outsourcing negotiations and transition activities.This may leave the customer at a disadvantage, feeling that they have lost control, and that theoperation is now “done to” rather than “done by” themselves!

It is important for the customer organisation to maintain control of the operation throughout; afterall, he does best know his business objectives, his customers and their needs, and his company’sgoals and strategies. An excellent technique for keeping control of the outsourcing process is forthe customer organisation to apply firm project and process management methodologies to theoutsourcing project and the resulting outsourced operation.

This presentation is entitled “Outsourcing - Four Projects and a Process”. It combines the standardelements of project and process management and describes an integrated methodology,highlighting the risks, critical success factors and deliverables of each phase. It is based on theauthor’s experience with infrastructure operations but is completely general and can apply just aseffectively to I.T. and other technical outsourcing projects.

• The standard CONTRACT MANAGEMENT PROCESS has four phases: Initiate, Establish,Manage and Terminate.

• The BUSINESS PROJECT has the standard phases of Initiate, Define, Manage and End. Itstarts with a business process or group of processes which are problematical and has the goal“to identify and implement a better way of doing it without diverting resources from the coreoperation”.

• The Project Initiation phase of the Business Project is prior to the Contract ManagementProcess. It has the goal “to select and approve a target solution to the business problem”. Thisis a PROJECT to develop a FEASIBILITY STUDY.

There are four broad options available: incremental process improvement, major re-organisation orre-engineering, use suppliers / outsource part of the operation, or outsource the whole operation(including management). Assuming that outsourcing to some degree is the selected targetsolution, the process continues:

• The Project Definition phase of the Business Project has the goal of selecting the supplier andcommitting a transition action plan. This is the Initiation phase of the Contract ManagementProcess, and also the PROPOSAL PROJECT. The scope of this project includes developmentof the scope of work and request for proposal, the evaluation of the proposals, selection of thesupplier, and ends with the signed contract.

• The Project Management phase of the Business Project has the goal “to transfer responsibilityfor the processes to the supplier with minimum disruption to the business operation”. This is theEstablishment phase of the Contract Management Process and the START-UP PROJECT.The scope of this project includes confirmation of the solution, establishment and training of thenew operational team, and development of reporting and measurement processes. The actualoperational handover date is during this phase.

• The Project End phase of the Business Project confirms handover of the operation, and marksthe start of the Manage phase of the Contract Management Process.

• The objectives of the Termination phase of the Contract Management Process are describedbriefly, and identified as yet another project!

Outsourcing -Four Projects

and aProcess

Marion FogellIBM South Africa(011) 302 8492 November 1999

Four Projects and a Process

Contract Management Process

Initiate

Establish

Manage

Terminate

Initiate Feasibility Study

Define Proposal

Manage Start-up

End

Business Project

The Business Project

Initiate

Define

Manage

End

The Business Project

✵ Starts with an area of business that is (usually):

✷ not a “core” or “line” operation

✷ not meeting user requirements

✷ not meeting control requirements

✷ perceived to be inefficient and expensive

Business Requirement

✵ to identify and implement a better way of doing it, withoutdiverting resources from the core operation

The Business Project

Initiate

Define

Project Initiation

✵ Business goal, target solution, business case and justification, key people, risks and constraints

✵ Deliverable = Feasibility study for target solution

Project Definition

✵ Scope and high-level design of solution, planning, recruitment of team

✵ Deliverable = Selected supplier, committed actionplan

The Business Project

Solution Build Initiate

Define

Manage

End

✵ Manage activities, develop, test and implement solution, refine and tune, manage changes, problems and risks

✵ Deliverable = Working solution

Project Completion

✵ Confirm handover of deliverables, release resources, assess project success

✵ Deliverable = Confirmation of achievement ofBusiness Goal

Initiate Feasibility Study

Define

Manage

End

The Feasibility Study

The Feasibility StudyGoal

✵ To select and approve a target solution to the business problem

Objectives

✵ Define the scope of the “problem operation”

✵ Identify alternative solutions. For each, identify

✶ costs and benefits

✶ risks and constraints

✶ extent to which it meets the business’ requirements

✵ recommend and justify the best solution

The Feasibility Study

Critical Success Factors

✵ Know your operation (process analysis, benchmarking)

✵ Know your customers’ long term needs and priorities (quality vs. cost by process)

✵ Know you company’s goals and strategies (Executive sponsorship)

✵ Know the industry (of your target operation)

✵ Keep an open mind

Tip: Use consultants (internal or external) toadd knowledge, and to maintain objectivity

The Feasibility Study

Options Available

✵ Incremental process improvement

✵ Major re-organisation or re-engineering

✵ Use suppliers / outsource parts of the operation

✵ Outsource the whole operation (including management)

The Contract ManagementProcess

Initiate

Establish

Manage

Terminate

Initiate

Establish

The Contract ManagementProcess

Initiate the Contract

✵ agree the work to be done and the business requirements, select the supplier, plan the handover

✵ includes signing the contract

Establish the Contract

✵ build relationships, agree roles, refine measurements, set expectations, focus on performance

✵ includes transfer of responsibility

Initiate

Establish

Manage

Terminate

The Contract Management Process

Manage the Contract

✵ manage performance and quality, communicate,implement price changes and incentives, contractrenewal

✵ Includes management of evolutionary changes

Terminate the Contract

✵ transfer responsibilities, remove accesses, recoverassets, finalise payments, agree warranties

Initiate the Contract

Initiate

Establish

Manage

Terminate

Initiate Feasibility Study

Define Proposal

Business Project

Proposal Project (Initiate the Contract)

Goal

✵ Select supplier, commit action plan

Proposal Project (Initiate the Contract)

Objectives

✵ Define the operational requirements (Scope of Work)

✵ Define the business requirements (T’s and C’s, pricing)

✵ Select qualified suppliers

✵ Define supplier evaluation criteria

✵ Send out Requests for Proposal

✵ Receive proposals, evaluate and select supplier(s)

✵ Review the risks involved

✵ Re-confirm that solution meets all requirements

✵ Sign contract

Proposal Project (Initiate the Contract)

Scope of Work

✵ Operational responsibilities

✵ Service level requirements

✵ Quality requirements

✵ Products, volumes and distribution

✵ Human Resources and Real Estate implications

✵ Operational relationships and communications

✵ Proposed Management System

✵ Transitional requirements

Proposal Project (Initiate the Contract)

Business Requirements

✵ Terms and Conditions

✵ Apportioning of risk

✵ Obligations and liabilities

✵ Pricing methodology

✵ Quality / Productivity incentives

✵ Measurement system

✵ Management of changes

✵ Termination provisions

Proposal Project (Initiate the Contract)

Critical Success Factors

✵ Create a shared vision

✵ Do not economise on skilled resources

✵ Do not rush

✵ Leave scope for innovation

✵ Executive concurrence

✵ Identify and assess all the risks

Establish the Contract

Initiate

Establish

Manage

Terminate

Initiate Feasibility Study

Define Proposal

Manage Start-up

Start-up Project (Establish the Contract)

Goal

✵ Transfer responsibility for the processes to the supplierwith minimum disruption to the business operation

Start-up Project (Establish the Contract)

Objectives

✵ Confirm understanding of the solution

✵ Confirm roles, build relationships

✵ Establish measurement processes

✵ Build and test reporting systems

✵ Refine and tune the solution

✵ Manage changes (justify, control, measure)

✵ Re-assess and manage the risks

Start-up Project (Establish the Contract)

Critical Success Factors

✵ Maintain the shared vision

✵ Keep those skilled resources!

✵ Get buy-in from all stakeholders

✵ Encourage and reward innovation

✵ The customer must stay in control

✵ Communicate, Communicate, Communicate!

End the Business Project

Contract Management Process

Initiate

Establish

Manage

Terminate

Initiate Feasibility Study

Define Proposal

Manage Start-up

End

Business Project

End the Business Project

Objectives

✵ Confirm handover of deliverables

✵ Release resources

✵ Confirm achievement of business goal

“ To identify and implement a better way of doing itwithout diverting resources from the core operation”

✵ Reward and communicate success!

Manage the Contract

Contract Management Process

Initiate

Establish

Manage

Terminate

Initiate Feasibility Study

Define Proposal

Manage Start-up

End

Business Project

Manage the Contract

Objectives

✵ Manage quality and performance

✵ Manage budgets and pricing

✵ Manage evolutionary changes

Critical Success Factors

✵ Keep the shared vision (revise it where appropriate)

✵ Don’t get complacent

✴ measure, meet, communicate

✵ Keep the Executive informed

Terminate the Contract

Contract Management Process

Initiate

Establish

Manage

Terminate

Initiate Feasibility Study

Define Proposal

Manage Start-up

End

Business Project

Objectives

Terminate the Contract

✵ Identify business goal and target solution

✵ Agree and define solution

✵ Plan close out / transfer activities

✴ timing, roles and responsibilities, activities

✵ Perform close-out / transfer activities

✴ transfer operational responsibilities

✴ remove access (physical and system)

✴ recover / transfer assets

✵ Finalise payments, warranties and contractualobligations

Which is Another Project!

Contract Management Process

Initiate

Establish

Manage

Terminate

Initiate Feasibility Study

Define Proposal

Manage Start-up

End

Business Project

Terminate